Less than a year after Maryland limited competitive restraints employers may place on low-wage employees, Virginia passed a law prohibiting non-compete clauses for low-wage employees. On April 9, 2020, Virginia Governor, Ralph Northam, signed SB 480 into law, which will go into effect on July 1, 2020. The new law states that on and after July 1, 2020, employers may not “enter into, enforce, or threaten to enforce a covenant not to compete with any low-wage employee.” As discussed below, Virginia’s new law is concerning for a number of reasons.
What is a “covenant not to compete”?
Virginia, like Maryland, broadly defines “covenant not to compete” to include any covenant or agreement “between an employer and employee that restrains, prohibits, or otherwise restricts an individual’s ability, following the termination of the individual’s employment, to compete with his former employer.”
A “covenant not to compete,” however does not include “nondisclosure agreements intended to the taking, misappropriating, threating to misappropriate, or sharing of certain information,” like confidential information and trade secrets. Accordingly, an employer is still able to protect trade secrets and proprietary or confidential information.
Who qualifies as a “low-wage employee”?
Maryland’s law banning non-compete agreements for low-wage employees explicitly defines a low-wage employee as someone who earns less than $15 per hour or $31,200 annually.
In contrast, Virginia’s new law defines a “low-wage employee” as “an employee whose average weekly earnings . . . are less than the average weekly wage of the Commonwealth” as determined by the Virginia Employment Commission. The average weekly wage can, and does, fluctuate from month to month. Currently, the average weekly wage in Virginia is in excess of $1,000 per week. Using the currently circulated weekly wage numbers ($1,125.00/week), a Virginia employer may not impose a “covenant not to compete” on any employee making less than around $58,500 annually. Having the threshold so high, and having it be a “moving target” undermines the purpose of protecting true “low wage employees” and unreasonably burdens employers.
The Virginia law explicitly lists “types” of employees that could be “low-wage employees” and “types” of employees that are not low-wage employees. Under the Virginia law, “low-wage employees” includes (1) paid or unpaid interns, students, apprentices, or trainees employed for the purpose of gaining work or educational experience; and (2) independent contractors who are paid hourly at a rate less than the average hourly wage in Virginia. Employees paid from “commissions, incentives, or bonuses” are not low-wage employees.
What remedies and penalties exist under the relevant Maryland and Virginia laws?
Virginia’s new law provides that a low-wage employee may bring a civil action against “any former employer or other person that attempts to enforce” a non-compete agreement within two years and “no employer may discharge, threaten, or otherwise discriminate or retaliate against” an employee who does bring a civil action under the new law. A court may void the non-compete, enter an injunction, and/or award damages. Additionally, an employer can receive a $10,000 civil penalty for each violation.
Maryland’s law prohibiting non-compete agreements provides that any non-compete agreement is “null and void as being against the public policy of the state” and does not list any penalties for violation of the law.
What do Virginia employers need to do in light of the new law?
Virginia employers must post a copy of the new law “or a summary approved by the Department” where they post employee notices. Failing to post may result in monetary penalties.
Finally, employers should review and update, if applicable, their current employment policies and non-compete agreements and be mindful of the law when entering into a non-compete agreements on and after July 1, 2020.